The confluence of multiple adverse shocks-the turbulence in financial markets, high commodity prices, and the appreciation of the exchange rate-have depressed growth in Europe. At the same time commodity prices increases have boosted headline inflation. While containing inflation remains a major concern, supporting the recovery is likely to gain policy prominence in the advanced economies. Looking forward, improvements in prudential regulation could mitigate the procyclicality of credit standards, which should help reduce macroeconomic volatility. Cross-border labor flows are generally seen to have beneficial macroeconomic effects.

Brücker, Herbert, 2007, “Labor Mobility After the European Union’s Eastern Enlargement: Who Wins, Who Loses?” German Marshall Fund Paper Series (Washington:German Marshall Fund). Available via the Internet: www.gmfus.org/doc/0307_LaborMobility.pdf.

Taylor, Ashley and CharlesGoodhart, 2006, “Procyclicality and Volatility in the Financial System: The Implementation of Basel II and IAS 39,” in Procyclicality of Financial Systems in Asia, ed. by Stefan Gerlach and Paul Gruenwald (Houndsmill, Basingstoke, United Kingdom: Palgrave Macmillan).

Other countries where restrictions were applied regarding access of Bulgarian and Romanian workers during the first stage of the transitory arrangements include the Czech Republic, Cyprus, Estonia, Latvia, Lithuania, Poland, Slovenia, the Slovak Republic, and Finland.

The asymmetric treatment of productivity developments in the nontradable and tradable sectors does not result in a loss of generality. Its sole purpose here is to generate the Balassa-Samuelson effect of price convergence.

Return migration is driven not only by the nature of the productivity shock, but also by imperfections in the degree of factor mobility, which amplify wage developments during transition. As labor flows out, capital cannot be immediately reduced to the optimal level. Thus, wages are temporarily “too high” in transition, which triggers return migration.